Proposed quality management standards


Authored by RSM US LLP

On February 4, 2021, the American Institute of Certified Public Accountants Auditing Standards Board issued an Exposure Draft that includes three proposed new standards for quality management at the firm and engagement levels, and proposed related revisions to various other standards for consistency with the new standards.

Proposed Statement on Quality Management Standards (SQMS), A Firm’s System of Quality Management, takes a new approach that emphasizes the responsibility of firm leadership for proactively managing quality by focusing on risks that may impact engagement quality. The proposed standard is scalable for differences in the size of firms and the nature of the services they provide. The proposed standard includes the following highly integrated components of a system of quality management:

  • The firm’s risk assessment process
  • Governance and leadership
  • Relevant ethical requirements
  • Acceptance and continuance of client relationships and specific engagements
  • Engagement performance
  • Technological, intellectual and human resources
  • Information and communication
  • The monitoring and remediation process

Proposed SQMS, Engagement Quality Reviews, includes requirements for robust policies and procedures addressing the appointment and eligibility of engagement quality reviewers and the performance of engagement quality reviews. Having a separate standard for engagement quality reviews is expected to emphasize the importance of the engagement quality review and that the engagement quality reviewer is acting on behalf of the firm. The requirements for the performance of the engagement quality review will focus the engagement quality reviewer’s attention on significant judgments and significant matters at appropriate points in time during the engagement. The proposed standard also includes an overarching requirement for proper documentation of the engagement quality review.

Proposed Statement on Auditing Standards (SAS), Quality Management for an Engagement Conducted in Accordance With Generally Accepted Auditing Standards, encourages proactive management of quality at the engagement level, emphasizing the importance of the exercise of professional skepticism, enhancing the documentation of the auditor’s judgments and reinforcing the need for robust communication during the audit. The proposed SAS makes clear that the engagement partner has overall responsibility for managing and achieving quality.

The proposed effective dates of these standards would require firms to design and implement a system of quality management prior to December 15, 2023, and to perform the first annual evaluation of the system of quality management within the following year. The performance of engagement quality reviews under the new standard would be required starting with (a) calendar-year 2024 financial statement audits or review engagements and (b) other engagements that begin on or after December 15, 2023. The proposed SAS would be effective for audits of periods beginning on or after December 15, 2023.